Oil Hedging Seen Relieving North Sea Explorers as Costs Surge

Oil explorers and producers in the North Sea are hedging their future output to counter declining crude prices at a time when production costs are rising, according to Bloomberg Intelligence.

Premier Oil Plc, Det Norske Oljeselskap ASA, EnQuest Plc and Ithaca Energy Inc. are among the companies hedging their production for the next two years at $55 to $98 a barrel, BI analyst William Hares wrote in a note on Monday.

Production expenses in the North Sea are climbing, making the aging oilfields unprofitable after oil prices tumbled by half. Operating costs in the U.K. North Sea rose to a record $30.50 a barrel last year, compared with the average cost of $20 a barrel in Norway, according to the note. Norway has 80 fields, compared with the U.K.’s 350, Hares said.

While Lundin Petroleum AB hasn’t hedged any of its production, 78 percent of EnQuest’s 2015 production, equivalent of 27,000 barrels a day, is sold at $65 a barrel, according to the note. Ithaca has hedged 75 percent of its output from April this year to June 2016 at $76 a barrel.

“Ithaca and EnQuest will be best protected should weak oil pricing persist, though may partially forgo the benefits of a potential price recovery,” Hares said in the note.

Premier has 15,342 barrels a day, or 28 percent, of its production this year hedged at $98 a barrel and 9,589 barrels a day of its 2016 output is sold at $69 a barrel. Det Norske sold 16,940 barrels a day of its production this year and 18,000 barrels daily of 2016 production at $55 a barrel.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE